UBS has outlined a string of wide-ranging changes to its staff pay policy after a large minority of shareholders at its annual meeting last May protested about its remuneration policy.

The Swiss bank has revealed it has cut the 2012 bonus pool for staff by 7% to Sfr2.5bn ($2.7bn) while senior executives will receive less of their bonus upfront than in the past – and will have to wait even longer to receive the rest.

Members of the group executive board will receive at least 80% of last year’s bonuses on a deferred basis, up from at least 76% for 2011 bonuses. The average length of deferral has risen from 2.7 years for 2011 to 4.5 years for 2012, while other senior staff will see the average deferral time for their awards climb from 2 years for 2011 to 3.8 years, UBS said today.

The changes come after just 60.07% ratified the 2011 compensation report in an advisory vote at UBS’s annual meeting last May. UBS chairman Axel Weber and chief executive Sergio Ermotti wrote in a letter to shareholders accompanying the bank’s full-year results this morning: “We took the result of the compensation report vote very seriously and initiated in-depth discussions with our shareholders to better understand their views.”

The changes are aimed at aligning the best interests of the bank, its shareholders and its staff. The bank has slashed the amount employees can receive in cash upon the award of their bonus, to increase deferral periods, and to introduce an innovative debt component to staff bonuses that will vest in one go after a full five years.

Previous bonus plans in place at UBS have been replaced by two new schemes that will apply to members of the bank’s group executive board and other staff earning at least Sfr250,000 or $250,000: an equity ownership plan and a deferred contingent capital plan.

The debt instrument, issued to staff under the deferred contingent capital plan, resembles the $2bn Basel III-compliant subordinated notes the bank issued to investors in February last year. Those notes had a so-called loss absorption trigger of 5% common equity ratio. At the end of 2012, UBS’ common equity ratio on a fully-applied Basel III basis was 9.8%.

The new contingent capital being used as compensation for UBS staff has a higher trigger ratio of 7%, meaning that staff would forfeit their awards before investors’ holdings are forfeited if the bank’s common equity ratio falls. UBS said the move “incentives prudent risk-taking by employees”. It also strengthens the bank’s capital position under Swiss regulatory treatment of bank capital.

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Staff receive annual interest on their deferred contingent capital holdings, subject to remaining at the bank and other conditions.

The structure differs from another innovative structure introduced by Swiss rival Credit Suisse in 2008, which tied bonuses to toxic assets originated by that division. The so-called partner asset facility units gave staff an equity interest in assets originated at the investment bank and accumulated interest, but would not yield cash distributions for several years.

Under the new plan at UBS, for members of the group executive board and other senior staff whose overall compensation is more than Sfr250,000 or $250,000, the bank has halved the maximum bonus that can be received in cash straight away from Sfr2m to Sfr1m. Any cash amount above this level will instead be converted into an award under the EOP.

For executive board members, the EOP accounts for 40% of their performance-related bonus and vests in three instalments between three and five years after the award. The deferred contingent capital portion also accounts for 40% of their bonus package and vests only after five years.

For other senior staff, EOP awards vest between two and three years after they are granted, while the deferred contingent capital awards, again, vest only after five years.